State Ponders Shifting Oversight of For-Profit Colleges from Quality to Abuse

California’s for-profit college industry is a mess and the regulatory agency charged with overseeing it since 2010 is overwhelmed. So when the federal government put in place new rules, starting next July, that required these schools to get state authorization before participating in loan programs, California was in a bind.

The 2009 legislative act that created the bureau also exempted regionally accredited colleges from its oversight. The LAO recommended that the exemption be extended to nationally-accredited schools. No more on-site inspections. No more reviews of general operations. That would all be left to accreditors.

The bureau would focus on complaints about institutions or intervene when poor school performance is manifest. There are no shortage of complaints and school performance is already officially in the tank.

A report (pdf) by the College Board in 2010 pegged the private-school, six-year graduation rate at 22%, compared to 55% among public four-year colleges and 65% in private schools. California has more than 1,000 for-profit colleges, including the University of Phoenix, ITT Technical Institute, Academy of Art University and Citrus Heights Beauty College.

About 11% of California students in post-secondary education are in for-profit schools, but their impact is felt beyond their numbers. They receive more Cal Grant dollars than those in community colleges, where around 60% of students attend. A study of for-profit schools nationally found that although they also only represent between 10-13% of the student population, for-profit schools get 25% of the financial aid and account for nearly half of all federal student loan defaults.

The industry is replete with deceptive recruiting practices, high costs, fraud and lousy student performance that have gone on for decades and continue to get worse. Jamienne Studley, appointed deputy undersecretary of the U.S. Department of Education in September, compared some for-profit schools with payday lenders, who charge usurious short-term loan rates, in an interview last year with California Watch.

The former president of Skidmore College in New York took a view of the situation opposite to the legislative analyst, suggesting that the bureau expand its oversight to all schools, accredited or otherwise, and not leave the function to accreditors because they don’t focus on fraud and abuse. She said only Texas and California do that.

“We strongly encourage the Legislature to closely examine the risks of relying on an external peer review process to effectively replace the state's consumer protection oversight for such a large segment of the private postsecondary sector,” Studley said.